Monday, February 10, 2014Last Update: 12:11 PM PT

Mortgage Industry Skates on Racketeering Claims

(CN) - Dozens of people whose homes were foreclosed upon between December 2006 and November 2010 lack standing to accuse the "entire mortgage industry" of a racketeering conspiracy, a federal judge ruled Monday. In late 2012, Massachusetts resident John Anctil and 15 other former mortgagors sued Bank of America, Deutsche Bank, Citigroup, PNC, Wells Fargo and others, seeking damages and injunctive relief under federal anti-racketeering law. The number of plaintiffs and defendants in that case ballooned several months later in two amended complaints, until the allegations practically consumed the "entire mortgage industry," U.S. District Judge Cathy Seibel wrote. "In essence, the [Second Amended Complaint] alleges that the entire mortgage industry is engaged in a massive racketeering scheme designed to mislead mortgagors, the public, and various government entities in order to illegally foreclose on homes," the 27-page opinion states. "To support this conclusion, much of the SAC is devoted to recounting the history and development of the mortgage securitization industry, the creation of the Mortgage Electronic Registration System ('MERS'), the role of the Mortgage Bankers Association ('MBA'), and the development of certain accounting standards by the Financial Accounting Standards Board ('FASB')." MERS, short for Mortgage Electronic Registration Systems, has been criticized for allegedly helping banks avoid fees or publicly recording mortgage transfers. In early 2012, New York Attorney General Eric Schneiderman targeted Bank of America, JPMorgan Chase and Wells Fargo in a lawsuit alleging that their use of MERS deprived homeowners and the general public of the ability to track the purchase and sale of properties through the public records system. Shielded from public scrutiny, unaccountable MERS officials rubber-stamped thousands of invalid foreclosures, in what came to be known as the robosigning scandal, Schneiderman said. The banks eventually settled that lawsuit without admitting or denying wrongdoing. With Judge Seibel's dismissal of the class action Monday for lack of standing, the merits of the racketeering remain unexamined. Seibel said the case fails under the Rooker-Feldman doctrine, a rule that precludes relitigation in federal court of state court cases. It derives from two U.S. Supreme Court cases, Rooker v. Fidelity Trust Co. and District of Columbia Court of Appeals v. Feldman. Quoting the mortgage companies' brief, Seibel characterized the allegations as "generalized grievance[s] against the entire mortgage industry" rather than a valid lawsuit. (Brackets in original) Nor did the judge find the alleged conspiracy plausible. "Nothing in the complaint indicates that these defendants, who are all competitors in the mortgage industry, are in fact working together towards a common goal of any kind," Seibel wrote. "The complaint merely alleges the roles each entity played in the legitimate mortgage industry, which is most accurately described as parallel activity among competitors - not coordinated activity to jointly achieve a common fraudulent purpose. The allegation that each of the Defendants uses the MERS system to further its own business goals is insufficient to plausibly support the existence of a RICO enterprise; inside traders all use the stock market to further their unlawful goals, but that alone does not plausibly lead to the conclusion that they are all working together as part of a single enterprise in furtherance of a larger fraudulent scheme." The plaintiffs will not get a fourth try to amend their claims, according to the ruling. A state lawsuit also seems unlikely because the plaintiffs variously hail from New York, Massachusetts and Maryland. Scott Kamber, who is representing the plaintiffs from the Wall Street-based firm Kamber Law LLP, indicated that the fight may not be over. "We are evaluating the decision in consultation with our clients to determine the most appropriate course of action," he said. Aside from a Deutsche Bank attorney who declined to comment, the defendants have not immediately returned an email about the case.